Eldorado Gold Corporation (EGO) Q2 2024 Earnings Call Transcript
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Overview
The earnings call presents a mixed picture. While net earnings and cash flow from operations have improved, free cash flow remains negative due to capital investments. The Q&A section reveals some uncertainties, particularly regarding production optimization and labor costs. However, management's optimistic outlook on future production and no significant operational disruptions suggest stability. Given the market cap and mixed signals, the stock is likely to remain neutral in the short term.
Key Financial Performance
Net Earnings $56 million (up from $X million in Q2 2023), positively impacted by higher revenue due to higher volumes sold and higher prices realized.
Adjusted Net Earnings $66.6 million or $0.33 per share (up from $X million in Q2 2023), adjusted for a $1.9 million gain on foreign exchange and a $12 million unrealized loss on derivative instruments.
Free Cash Flow Negative $32 million (compared to positive $X million in Q2 2023), but positive $33.9 million excluding capital investment in Skouries.
Cash Flow from Operating Activities $132 million (up from $82 million in Q2 2023), primarily due to higher sales volumes and realized gold prices.
Total Cash Costs $940 per ounce sold (up from $X per ounce in Q2 2023), increased due to higher labor costs, consumables, and higher royalty expenses.
All-in Sustaining Costs (AISC) $1,331 per ounce sold (up from $X per ounce in Q2 2023), impacted by higher royalty expenses and increased sustaining capital investment.
Capital Expenditures $133 million (up from $X million in Q2 2023), including $92 million invested in Skouries.
Current Tax Expense Just over $20 million (down from approximately $22 million in Q2 2023), primarily due to reduced Turkish taxes after accounting for increased investment tax credits.
Deferred Income Tax Expense $1 million (down from $17 million in Q2 2023), influenced by various factors including a $4.4 million expense for use of tax attributes in Canada.
Total Liquidity $810 million, including $595 million of cash and cash equivalents and $215 million of available credit capacity.
Operating Highlights
Skouries Project: Skouries is on track for first production in Q3 2025, with construction progress at 76% and significant capital investment of $92 million in Q2 2024.
Geometallurgical Test Work Program: A program is underway at Kisladag to evaluate ore type variability, aiming to refine processing circuits and maximize value.
Gold Production Guidance: Eldorado Gold expects to produce between 505,000 and 555,000 ounces of gold in 2024, with increased production anticipated in the second half.
Kisladag Production Guidance: Production guidance for Kisladag is between 180,000 and 195,000 ounces of gold for 2024.
Olympias Production Guidance: Production guidance at Olympias is between 75,000 to 85,000 ounces of gold for 2024.
Efemçukuru Production Guidance: Production guidance at Efemçukuru is between 75,000 and 85,000 ounces of gold for 2024.
Lamaque Production Guidance: Production guidance at Lamaque is between 175,000 and 190,000 ounces of gold for 2024.
Operational Efficiency: Lost time frequency rate decreased to 0.40 incidents per million hours worked, reflecting improved safety measures.
Cost Management: Total cash costs were $940 per ounce sold, with all-in sustaining costs at $1,331 per ounce sold, in line with expectations.
Credit Facility: Eldorado extended and increased its senior secured credit facility by $100 million to enhance liquidity.
Focus on Continuous Improvement: The company is committed to continuous improvement projects to deliver safe and profitable ounces.
Risk or Challenges
Labor Disputes: Labor initiated work stoppages at Olympias totaling 17 days during negotiations on a new collective bargaining agreement, impacting production.
Increased Costs: Total cash costs increased to $940 per ounce sold and all-in sustaining costs to $1,331 per ounce sold, primarily due to higher royalties, labor, contractor costs, and fuel prices.
Regulatory Risks: Higher royalty expenses in Greece and Türkiye due to increased gold prices, as the royalty structures are calculated on a sliding scale linked to gold prices.
Project Financing: Negative free cash flow of $32 million, although cash flow generated by operating activities was positive, indicating potential financial strain.
Economic Factors: Current tax expenses decreased due to reduced Turkish taxes, but deferred income tax expenses increased due to currency fluctuations and inflation accounting.
Production Guidance: Production guidance remains unchanged, but labor disputes and increased costs could impact future production levels.
Guidance & Outlook
Skouries Project Progress: Skouries is on track for first production in Q3 2025, with significant construction progress and a capital investment guidance of $375 million to $425 million for 2024.
Health and Safety Initiatives: The lost time frequency rate decreased to 0.40 incidents per million hours worked, reflecting a commitment to a safe workplace.
Sustainability Achievements: Eldorado received AAA scores in tailings, health and safety, and biodiversity at Efemcukuru, indicating excellence in sustainability practices.
Geometallurgical Test Work Program: A program is underway at Kisladag to evaluate ore type variability, aiming to optimize processing and maximize value.
2024 Gold Production Guidance: Eldorado expects to produce between 505,000 and 555,000 ounces of gold in 2024.
Cost Guidance: Total cash costs are expected to be $940 per ounce sold and all-in sustaining costs at $1,331 per ounce sold.
Kisladag Production Guidance: Production guidance for Kisladag is between 180,000 and 195,000 ounces of gold for 2024.
Olympias Production Guidance: Production guidance for Olympias is between 75,000 to 85,000 ounces of gold for 2024.
Efemçukuru Production Guidance: Production guidance for Efemçukuru is between 75,000 and 85,000 ounces of gold for 2024.
Lamaque Production Guidance: Production guidance for Lamaque is between 175,000 and 190,000 ounces of gold for 2024.
Shareholder Return Plan
Shareholder Return Plan: George Burns mentioned that the Skouries project is expected to be a powerful catalyst to drive shareholder returns as the company continues to deliver construction progress over the next year and production in Q3 2025.
Free Cash Flow: Eldorado reported a negative free cash flow of $32 million for the quarter, but a positive $33.9 million when excluding capital investment in the Skouries project.
Cash Position: The company ended the quarter with total liquidity of $810 million, including $595 million in cash and cash equivalents.
Capital Expenditures: Capital expenditures on a cash basis were $133 million in the second quarter, with significant investments in growth projects at Kisladag and Skouries.
Key Q&A
Earnings Word Cloud
EGO Transcript
The earnings call presented strong financial performance with a significant revenue increase, driven by elevated gold prices, and a positive free cash flow when excluding Skouries investments. The expansion of the share repurchase program and strategic investments in Skouries and other projects indicate confidence in long-term growth. Despite some concerns about production delays and increased costs, management's optimistic guidance and strategic initiatives suggest a positive outlook. Given the market cap of approximately $3 billion, the stock is likely to experience a positive movement of 2% to 8%.
The earnings call indicates strong revenue growth and improved cash flow, despite increased costs and tax expenses. The Q&A section reveals confidence in project completion and shareholder value return, boosting sentiment. However, caution is warranted due to increased costs and lack of clear guidance on NCIB. The market cap suggests moderate sensitivity, leading to a prediction of a 2% to 8% stock price increase.
The earnings call summary presents a mixed picture. Financial performance shows increased net earnings and cash flow, but with negative free cash flow and increased costs. The Q&A reveals some uncertainties, particularly regarding underground development and inflationary pressures. However, optimistic guidance on production and liquidity provides balance. The market cap suggests moderate reaction, leading to a neutral prediction.
The earnings call presents a mixed picture. While net earnings and cash flow from operations have improved, free cash flow remains negative due to capital investments. The Q&A section reveals some uncertainties, particularly regarding production optimization and labor costs. However, management's optimistic outlook on future production and no significant operational disruptions suggest stability. Given the market cap and mixed signals, the stock is likely to remain neutral in the short term.
EGO Report
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